Ahava, as others have mentioned, this is a complex topic. Few are familiar with all the sources, because they are seldom studied. (That said, R’ Yaacov Astor wrote an interesting book, called Soul Searching I think, with a chapter on this topic.) But here are some of my thoughts on your original question.
Neshamos aren’t reincarnated forever. Some souls may never reincarnate, because they fulfilled their tikun in one lifetime, while some may reincarnate numerous times, because it is necessary for the achievement of their soul’s purpose or rectification.
Even if a departed soul is later reincarnated, we don’t know how long it takes. So your prayers (and kaddish) may help cleanse the soul prior to reincarnation, so that less will need to be accomplished in the next life. Or perhaps your prayers will spare it from having to reincarnate again at all.
I don’t know if this is really a general rule, but I’ve heard chassidic sources teach that if one sins against G-d and does not achieve forgiveness, the punishment is only some purification in purgatory, but our unforgiven sins against one another make an additional gilgul necessary.
The Baba Sali asked a well-known kabbalist to tell him whose neshama he (Baba Sali) had. The kabbalist told him he was reincarnated from Chizkiyahu, I think, which pleased the Baba Sali. I believe the Arizal was also known for telling people who they were reincarnated from.
I don’t remember a particular source saying that departed souls watch over us, but I remember reading that in various places, and I’m sure they do. It’s even possible that part of the soul reincarnates, and part of the soul stays to watch over us. Or even during a reincarnation, one’s soul might watch over the living during sleep (when souls leave the body and do…what souls do.)